In a letter sent today to central bank leaders ahead of a G-20 meeting this week, the GFMA voiced “strong opposition” to the planned tax, which it claimed would stunt economic growth by making it harder for banks and businesses to raise funds.

The Association sited research from the International Capital Market Association (ICMA), which has stated in its current form, the FTT would cause the short-term European repo market to contract by at least 66%, “causing capital flight harming bank funding, and thus lending to the real economy,” the letter from the GFMA, which represents sell-side bodies in Europe, the US and Asia, read.

“This would potentially also impact on central banks’ monetary policy.”

The repo market is instrumental in managing collateralising credit, and if impeded, could adversely affect the flow of central bank credit, the letter warned.

“The FTT will increase the cost of equity and debt financing for both governments and corporates, increase the cost of hedging transactions undertaken in the real economy in order to manage risk, and create a further headwind to the global and European economic recovery,” it read.

Overall, the financial services industry has reacted strongly to plans to tax equity and fixed income transactions by 0.1% and derivatives by 0.01%.

Under the current proposal formed by the European Commission in February, the FTT would be a global tax, applicable to any transaction involving a counterpart based in one of the 11 supporting EU member states, or any instrument issued in one of those states.

On Friday and Saturday, G-20 finance ministers and central bank governors will meet in Moscow to discuss developments in the global economy and implementation of the G-20 framework for growth.

The European Commission is expected to release a revised proposal in line with technical working groups conducted between the 11 supporting states, which will likely include less ambitious taxation details and an extension to the proposed implementation timeline.